A to Z of Mortgages Glossary

A
Adjustable Rate Mortgage Design - A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a renegotiable rate mortgage, variable rate mortgage or Canadian rollover mortgage.

B
Balloon Mortgage - A loan which is amortized for a longer period than the term of the loan. Usually this refers to a thirty year amortization and a five or seven year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.

C
Combined-Loan-to-Value - The total percentage of all loans as they relate to the purchase price or appraised value.

D
Debt-to-Income Ratio - Total monthly debt divided by gross monthly income. The “average” DTI is around 38%.

E
Equity - The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

Escrow - An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.

F
Fixed Rate Mortgage - The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

G
Great Customer Service – Call Cindy today!

H
HELOC - Home Equity Line of Credit allows you to access the equity in your home. The interest rate on this type of loan is usually tied to the current prime rate.

I
Index - A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one, three, and five year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

J
Jumbo Loan - A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

K
Krieg – all loans lead to Cindy

L
Loan-to-Value Ratio - The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

M
Market Value - The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

N
Negative Amortization - When your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The home buyer ends up owing more than the original amount of the loan.

O
One Hundred Percent Financing - When you finance for the exact same dollar amount as your purchase agreement. This usually results in a higher rate as the lender is assuming more risk.

P
Prepayment Penalty - Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Private Mortgage Insurance (PMI) - In the event that you do not have a 20 percent down payment, PMI is required. In some instances your loan package will be two loans, one at 80% of the purchase price, with the second loan up to 20% of the purchase price. This avoids the need for PMI.

Q
Quit Claim Deed – Adds or removes an individual from the property deed. When a married couple buys a home, but the financing is in one name, the spouse will be required to sign a ‘quit claim deed’ relinquishing all rights to the property.

R
Reverse Annuity Mortgage - A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as collateral for and repayment of the loan.

S
Subprime Loan – A generic term for a mortgage involving higher risk on the part of the lender. These loans usually carry a pre-payment penalty but are a useful tool for helping individuals with a recent bankruptcy to be able to purchase a home

T
Title Insurance - A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.

U
Underwriting - The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

V
Verification of Deposit - A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

W
Wow Factor - What Cindy’s clients say when her loans close on time and fund in full!

X
X-tra Principle Payments - Whenever possible, I encourage my clients to make additional principle payments.

Y
You should check back later to see what the “Y’s” of mortgages are!

Z
You should check back later to see what the “Z’s” of mortgages are!